Terrorism Insurance: Request for Comments

A newly released I.I.I. white paper observes that recent developments such as the attempted SUV bombing in New York CityÃ¢â‚¬â„¢s Times Square and the March 29 Moscow subway bombings are propelling terrorism into the headlines once more and reaffirm the risk facing insurers.

In the notice, the Treasury said the Terrorism Risk Insurance Act of 2002, as amended by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (which extended TRIA until December 31, 2014), requires the PresidentÃ¢â‚¬â„¢s Working Group on Financial Markets to perform an ongoing analysis regarding the long-term availability and affordability of insurance for terrorism risk.

The working group is required to submit a report to Congress this year and another report in 2013. It is conducting its analysis in consultation with the National Association of Insurance Commissioners (NAIC), representatives of the insurance industry, the securities industry and representatives of policyholders.

These parties have 45 days to submit comments either electronically through the Federal eRulemaking Portal or by mail to the TreasuryÃ¢â‚¬â„¢s Office of Financial Institutions Policy.

Meanwhile, a new report by Guy Carpenter reveals that as the ninth anniversary of the 9/11 attacks approaches, the threat from terrorism continues to pose a risk to the re/insurance industry. Guy Carp says:

Joel – Thanks for your comment. Terrorism insurance provides coverage to individuals and businesses for potential losses due to acts of terrorism, such as property damage and damage to personal possessions.

We have been aware of this in the UK for a while, not least because of the 10,000 plus bombs that went off during the Northern Island conflict.

Eventually in 1992 a bomb went off in the heart of the financial district of The City of London, known as the Baltic Exchange Bomb. It caused Ã‚Â£800Million ($2Billion) worth of damage, making it more expensive by some $500Million than all the other bombs in that conflict put together.

Thereafter, terrorism cover was removed from commercial policies to keep the cost of them from being skewed by such extreme and expensive possibilities. Terrorism was catered for under a system called Pool Re. Insurers pay into a terrrorism fund which is guaranteed by the Government. In the event of a terrorism event, the fund pays out with the government making up any shortfall, which is in turn repaid by future contributions to the Pool Re fund.

Thus far the fund has covered such terrorist related claims without the need for the government to top it up.